New research from MIT Sloan professor shows how global brands can improve working conditions in suppliers' factories in developing countries

Findings help Nike, Inc. to evolve its compliance strategy

CAMBRIDGE, Mass., Jan. 23, 2007 — Global brands are more likely to influence the improvement of working conditions in their suppliers' factories in developing countries by providing technical assistance to suppliers and empowering employees on shop floors. New research by an MIT Sloan School of Management professor found this approach to be more effective than monitoring codes of conduct, which is currently the leading way that global brands and labor rights organizations address poor working conditions.

Richard Locke, the Alvin J. Siteman Professor of Entrepreneurship at MIT Sloan, and his former student Monica Romis, compared working conditions in two Mexican garment factories that supply athletic footwear and apparel giant Nike, Inc. Although they both passed compliance with Nike's code of conduct, only one factory earned high scores in overall employee satisfaction with workplace conditions.

The key difference, according to Locke, is that the factory with the higher satisfaction scores implemented ‘lean manufacturing processes’ — a term referring to manufacturing methods based on maximizing value and minimizing waste in the manufacturing process — that resulted in employees having greater autonomy and power to make day-to-day decisions on the shop floor.

Locke's new research has, in part, helped to evolve Nike's compliance strategy toward supplementing monitoring with collaborative initiatives aimed at incorporating these findings among its suppliers.

“The point of our comparison is not to present one factory as ‘good’ and the other as ‘bad’ on all dimensions,” says Locke. “Rather, we are trying to illustrate the different approaches to labor standards manifested at these two plants and their resulting impact.”

Nike provided Locke and Romis with access to confidential data on compliance scores of their worldwide network of suppliers' factories. Since 1992, all Nike's suppliers have been obligated to sign the company's code of conduct and post it within their factories.

With approximately 800 suppliers employing more than 600,000 workers in more than 50 countries, Nike has assembled a team of 90 compliance staff based in 21 countries to enforce compliance with its codes and provide in-depth auditing of environmental, safety, management and health issues.

Locke and Romis then identified the two factories, which performed at very similar levels of compliance but with employee satisfaction surveys that indicated vastly different working conditions. The first Mexican company, which Locke and Romis refer to as Plant A, is situated in an industrial park and has been owned by a Mexican family for more than 50 years.

The second factory, Plant B, is part of a Taiwanese group. Although the two factories are roughly the same size and age, produce similar products, pay the same minimum wage, limit overtime, and have comparable turn-over rates, differences manifested in:

Employee Satisfaction

In Plant A, employees work in teams, operate more than one type of sewing machine, and are responsible for routine maintenance. Interviews with employees indicated that they appreciate job rotation and value performing a variety of operations. In Plant B, employees work at fixed stations and specialize in narrowly defined jobs performing the same operation over the year.

Worker Participation in Production Planning

Workers in Plant A participate in decisions affecting production targets, allowing them to suggest alternative ways to perform operations, often rendering it quicker and easier. Workers in Plant B must follow orders and do not have the opportunity to give their input.

Work Hours and Overtime

When Plant A needs employees to work extra time, it allows workers to apply for shifts. At Plant B, the supervisor chooses which employees have to stay longer.

Wages

Although both factories pay the same legal minimum wage, workers at Plant A earn an average weekly salary that is 21 percent higher than Plant B in part because productivity bonuses are based on team results rather than individual productivity.

According to Locke, Plant A invested heavily in the training of its workers to implement lean manufacturing processes effectively, and became wary of mistreating these highly skilled workers for fear that the company would lose its investment in them.

Plant A now produces 2,700 T-shirts per day with 18 production workers, whereas it used to produce 2,400 T-shirts per day using 20 production workers. Interviews with managers also indicated that Plant A sees Nike as a partner in collaboration to improve productivity and working conditions while the relationship with Plant B has remained more formal and distant.

“The limitations of the audit process are by no means unique to Nike but characterize many factory audits conducted by global brands and NGOs,” says Locke. “Often suppliers claim that brands are insisting on faster cycle times, better quality and lower prices, while at the same time policing and admonishing them for poor working conditions. Global brands, in turn, argue that problems associated with both production and labor standards are the result of suppliers' shortsightedness and lack of professionalism. The experience of Plant A shows that there is a way out of this trap.”